International Issues in Supply
Chain Management
Designing & Managing the Supply Chain
Chapter 8
Yun-Ho Song
ezeckiel@pusan.ac.kr
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Outline
 CASE : Wal-Mart Changes Tactics to Meet International Tastes
 INTRODUCTION
 RISK AND ADVANTAGES OF INTERANTIONAL SUPPLY CHAINS
 ISSUES IN INTERATIONAL SUPPLY CHAIN ANAGEMENT
 REGIONAL DIFFERENCES IN LOGISTICS
 SUMMARY
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Wal-Mart Changes Tactics to Meet
International Tastes
 Wal-Mart Stores is finding out that what plays in
Peoria isn’t necessarily a hit in suburban Sao Paulo
 Tanks of live trout are out; sushi is in
 American footballs have been replaced by soccer balls
 American-style jeans price at $19.99 have been dropped in favor
of $9.99 knock-offs
 Adapting to local tastes may have been the easy
part
 Three years after embarking on a blitz to bring “everyday low
price” to the emerging market of Brazil and Argentina
 Wal-Mart is finding the going tougher than expected
 However Wal-mart produced red ink
 Brutal competition
 Don’t achieve efficiency through economies of scale
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DEEP POCKET
 Wal-Mart has revised its merchandising in Brazil and
Argentina and made other changes
 4 newest stores are smaller than the initial outlets in San Paulo and
Buenos Aires
 It located at Mid size cities where competition isn’t so force
 8 stores are planned to open in both Argentina and Brazil next year,
doubling the number now in each country
 Wal-Mart’s global expansion drive, which is targeting
not only South America but also China Indonesia
 The markets of China and Indonesia are promising and pitfalls
 The growth is dwindling in America
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A SMALL OPERATION SO FAR
 The six-year-old international operation is relatively
tiny
 It accounted for only 4.8 percent of Wal-Mart’s 1996 sales
 Most of the company’s international revenue comes from Canada
 Mr. Glass expects international growth to account for
a 1/3 of War-Mart’s annual increase in sales and
profits within three to five years
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LOSSES FORECAST
 SA, expect Wal-Mart to lose $20 million to $30 million
in Brazil this year, on top of an estimated $48 million
in losses since starting up in South America in 1995
 Some store in Buenos Aires, a few shoppers are in the store during
peak hours one Sunday
• Little difference between the goods at Wal-Mart and those at near by
Carrefour
• Competitor’s chain supermarket supply fresh meat
 Carrefour drives Hard bargains with its suppliers, can
afford to play low-ball because it has the critical mass
that War-Mart lacks here
 Carrefour holds down overhead by stocking far-narrow selection of
merchandise
• Ex) Carrefour in La Plata, Argentina, stocks 22,000 items, while the
Wal-Mart next door carries 58,000 items
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DISTRIBUTION PROBLEMS
 Wal-Mart’s effort to stock such a wide variety of
merchandise is hurting it
 Squeezing out costs in the supply chain is crucial to it’s EDL pricing
formula
 Bumper-to-bumper traffic of San Paulo
 The biggest issue Wal-Mart is shipping product on
time and getting on the shelf
 Wal-Mart recently built a warehouse in Argentina and Brazil to reduce
distribution problem
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VARIOUS MISTAKES
 Wal-Mart’s troubles in South America stem partly from
its own mistakes
 Some goods are useless in San Paulo
• Ex) Live trout, American footballs, Cordless tools
 Wal-Mart brought in stock-handling equipment that didn’t work with
standardized local pallets
 Installed a computerized bookkeeping system that failed to take into
account Brazil’s wildly complicated tax system
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PROBLEMS CALLED TEMPORARY
 Wal-Mart’s Mr. Glass characterized the missteps are
regarded as temporary problems and inevitable in
entering a new market.
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INTRODUCTION
 Important of Global operation and Supply chain
 Dornier’s statistics
• About 1/5 of the output of U.S. firms is produced overseas
• 1/4 of U.S. imports are between foreign affiliates and U.S. parent
companies
• Since the late 1980s, over half of U.S. companies increased the
number of countries in which they operate
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INTRODUCTION
 International distribution systems
 Manufacturing occur domestically, but distribution and typically
some marketing take place overseas
 International suppliers
 Raw materials and Components furnished by foreign suppliers , but
final assembly is performed domestically, in some case, the final
product is shipped to foreign markets
 Offshore manufacturing
 Product is typically sourced and manufactured in a single foreign
location, and then shipped back to domestic warehouses for sale
and distribution
 Fully integrated global supply chain
 Products are supplied, manufactured and distributed from factories
located throughout the world
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Global Market Forces
 Involve the pressures created by foreign competitors
as well as the opportunities created by foreign
customers
 As in the dry breakfast cereal business, dominated by Kellogg Co. in
US and Nestle in Europe
• They failed attempts in the past to penetrate each other’s home
markets, combined with the threat of retaliation, are enough to
maintain the status quo
 Overflow of information can be one reason of global
demand
 Ex) Television, E-mail, Internet
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Technological Forces
 Related to the product themselves
 Various subcomponents and technologies are available in different
regions and locations around the world
 Global location of research-and-development facilities
is becoming more common
 product cycles become shorter and time more important, companies
have discovered how useful it is to located research facilities close to
manufacturing facilities
 Specific technical expertise may be available in certain areas or
regions
• Ex) Microsoft recently opened a research lab in Cambridge, England
to take advantage of the expertise available in Europe
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Global Cost Forces
 Global location decisions
 In the past the low cost of unskilled labor was decisive factor in
determining factory location
 Recently, other global cost forces have become more significant
• Many of the analyses and programs that US consulting firms
undertook to address the Year 2000 problem were done in India,
where programming skills are much cheaper
• Capital cost of building a new facility often dominate labor cost
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Political and Economic Forces
 Affect the drive toward globalization
 Regional trade agreements drive companies to expand into one of the
countries in the regional group
• A company’s advantage to obtain raw materials from or to
manufacture within European, Pacific Rim, or North America trading
block
 Various trade protection mechanisms can affect
international supply chain decisions.
 Tariffs and quotas affect what can be imported, and lead a company to
decide to manufacture within the market country or region
• Ex) Local content
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RISK AND ADVANTAGES OF
INTERANTIONAL SUPPLY CHAINS
 Cost can be lowered with greater potential raw
material, labor, and outsourcing sources and a greater
number of potential manufacturing sites.
 Management understand the different demand characteristics and
cost advantages of different regions
 The global supply chain can provide a firm with the
flexibility to address the in international markets
 Flexibility can ne used to counteract the inherent risks from various
factor that are relevant to global companies
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Risks
 Fluctuating exchange rates
 Change relative value of production and profit
 Operating exposure
 Customer reactions
• How a firm adjusts prices in various market
 Competitor reactions
• Competitor’s relative cost decrease more, a firm can be underpriced in
the market
 Government reactions
 Intervene to stabilize currencies or even directly support endangered
firms by providing subsidies or tariffs
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Addressing Global Risks
 Speculative Strategies
 A company bets on a single scenario, with often spectacular
results if the scenario is realized, and dismal ones if it is not
 Hedge Strategies
 A company designs the supply chain in such a way that any losses
in part of the supply chain will be offset by gains in another part
 Flexible Strategies(1/2)
 Enable a company to take advantage of different scenarios
 Typically, flexible supply chains are designed with multiple
suppliers and excess manufacturing capacity in different countries
 Factories are designed to be flexible, so that products can be
moved at minimal cost from region to region as economic
conditions demand
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Addressing Global Risks
 Flexible Strategies(2/2)
 several approaches
• Is there enough variability in the system to justify the use of flexible
strategies?
• Do the benefits of spreading production over various facilities justify
the cost?
• Does the company have the appropriate coordination and
management mechanisms in place to take rapid advantage of flexible
strategies?
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Addressing Global Risks
 Production shifting
 Flexible factories and excess capacity and suppliers can be used
to shift production from region to region to take advantage of
current circumstances
 Information sharing
 Information can be used to anticipate market changes and find new
opportunities
 Global coordination
 Having multiple facilities worldwide provides a firm with a certain
amount of market leverage that it might otherwise lack(Ex 8-2 253p)
 Political leverage
 The opportunity to move operations rapidly gives firms a measure
of political leverage in overseas operations
• governments are lax in enforcing contracts or international law, or
present expensive tax alternatives, firms can move their operations
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Requirements for Global Strategy
Implementation
 Product development
 It is important to design products that can be modified easily for
major markets, and which can be manufactured in various facilities
 Purchasing
 A company will find it useful to have management teams
responsible for the purchase of important materials from many
vendors around the world
• easier to ensure that the quality and delivery options from various
suppliers are compatible
 Production
 Excess capacity and plants in several regions are essential if firms
are to take full advantage of the global supply chain by shifting
production as conditions warrant
• Centralized management are essential in this case
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Requirements for Global Strategy
Implementation
 Demand management
 It involves setting marketing and sales plans based on projected
demand and available product, is carried out on a regional basis
 Order fulfillment
 To successfully implement a truly flexible supply chain management
system, a centralized system must be in place so that regional
customers can receive deliveries from the global supply chain with the
same efficiency as they do from local or regionally based supply chain
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Review the last part
 Following Forces are lead the Globalization
 Global market forces - opportunity
 Technological forces - product
 Global cost forces- location, labor, Y2k
 Political and economic forces – local contents
 Addressing global risk
 Speculative Strategies – set one scenario
 Hedge Strategies – one part loss, but other part get income
 Flexible Strategies – typically contract many supplier and design the surplus
produce capacity
• Production shifting
• Information sharing
• Global coordination – market leverage
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ISSUES IN INTERATIONAL SUPPLY CHAIN
MANAGEMENT
 Region-specific products
 Some products have to be designed and manufactured specifically for
certain regions
• For example, automobile designs are often Region specific
• Ex) Honda Accord has 2 type of body
• Ex 8-3 255p
 True global products
 These products are truly global, in the sense that no modification is
necessary for global sales
 Ex) Coca-Cola, Levi’s jeans and McDonald’s burgers
 Consider carefully which of the 2 product type is more
appropriate for a particular situation
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Local Autonomy versus Central Control
 Centralized control can be important in taking
advantage of some of the strategies
 But in many cases it makes sense to allow local
autonomy in the supply chain
 Regional operation have proven to be successful
 Regional business depending on the characteristics of the region
• Japan, German, U.S
 Ex 8-4 p 256
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Miscellaneous Dangers

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


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Exchange rate fluctuation
Offshore facilities
Cheap labor
Expensive training
Local collaboration (Ex8-5 202p)
Dangers related to foreign governments
 Ex) To deal with China and gain access to that country’s huge markets,
many companies are handing over critical manufacturing and
engineering expertise to the Chinese government or to Chinese
partners
 protectionism (Ex8-6 202p)
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REGIONAL DIFFERENCES IN LOGISTICS
 Cultural Differences
 Cultural differences can critically affect the way international
subsidiaries interpret the goals and pronouncements of
management
• Language - expression, gestures, context
• Belief - differ widely from culture to culture
• Customs - differ widely from culture to culture
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REGIONAL DIFFERENCES IN LOGISTICS
 Infrastructure
First World
Infrastructure
Highly developed
Emerging
Under developed
Third World
Insufficient to support
advanced logistics
 First World, relative economic conditions have affected the mix of
logistics and supply chain components
 Emerging nations, the supply chain infrastructure is usually not fully in
place. logistics as a necessary expense and not a strategic advantage,
so they limit investments in logistics infrastructure
 Third World, the infrastructure is generally insufficient to support
advanced logistics operations
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REGIONAL DIFFERENCES IN LOGISTICS
 Performance Expectation and Evaluation
 First World, operating standards are generally uniform and high
 emerging nations, operating standards typically vary greatly
• Ex) contract, appointment
 In the Third World, traditional performance measures have no
meaning
• Shortages are common
• Customer service measure have no meaning
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REGIONAL DIFFERENCES IN LOGISTICS
 Information System Availability
 First World, computer technology has increased at same rate across
different nations
• POS, EDI
 Emerging nations, Support systems may not be in place to implement
efficient information systems
• Communication network incomplete and not reliable
 Third World, Advanced information technology is simply not available
• Inefficient communication system
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REGIONAL DIFFERENCES IN LOGISTICS
 Human Resources
 First World, technically and managerially competent workers are
available
• Unskilled labor is relatively expensive
 Emerging nations, skilled managerial and technical personnel are
frequently not available
 Third World, Although it may be possible to find employees that are
appropriate to the available technology level
• Difficult to find Trained logistics professionals and managers familiar
with modern management techniques
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